jpmorgan-guide-to-the-markets-1q-2013

1Q | 2013 As of December 31, 2012

速

Guide to the Markets

Table of Contents

EQUITIES

4

ECONOMY

16

FIXED INCOME

34

INTERNATIONAL

42

ASSET CLASS

55

U.S. Market Strategy Team Dr. David P. Kelly, CFA

david.p.kelly@jpmorgan.com

Joseph S. Tanious, CFA

joseph.s.tanious@jpmorgan.com

AndrĂŠs D D. Garcia-Amaya Garcia Amaya

andres d garcia@jpmorgan com andres.d.garcia@jpmorgan.com

Brandon D. Odenath

brandon.d.odenath@jpmorgan.com

David M. Lebovitz

david.m.lebovitz@jpmorgan.com

Gabriela D. Santos

gabriela.d.santos@jpmorgan.com

Anthony M. Wile

anthony.m.wile@jpmorgan.com

www.jpmorganfunds.com/mi Past performance is no guarantee of comparable future results.

2

Page Reference Equities 4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

3 14.

15.

Returns by Style Returns by Sector S&P 500 Index at Inflection Points Stock Valuation Measures: S&P 500 Index Earnings Estimates and Valuations by Style Corporate Profits Sources of Earnings per Share Growth Confidence and the Capital Markets Deploying Corporate Cash Broad oad Market a et Lagged agged Price ce to Earnings a gs Ratio at o P/E Ratios and Equity Returns Equity Correlations and Volatility

Economy 16.

17.

18 18.

19.

20.

21.

22.

23.

24.

25 25.

26.

27.

28.

29.

30.

31.

32.

33.

Economic Growth and the Composition of GDP Cyclical Sectors Consumer Finances Corporate Finances Federal Finances: Outlays and Revenues Federal Finances: Deficits and Debt Tax Rates and the Distribution of Income & Taxes Current Account Deficit and U.S. Dollar The Aftermath of the Housing Bubble Employment Job Growth, Productivity and Labor Force Employment and Income by Educational Attainment Consumer Price Index Returns in Different Inflation Environments – 40 years Oil and the Economy Global Oil Supply Domestic Natural Gas Consumer Confidence and the Stock Market

Fixed Income

3

34. Fixed Income Sector Returns 35. Interest Rates and Market Performance

36.

37.

38.

39.

40.

41.

Fixed Income Yields and Returns The Fed and the Money Supply Credit Conditions High Yield Bonds Municipal Finance Emerging Market Debt

International 42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52 52.

53.

54.

Global Equity Markets: Returns and Composition Global Economic Growth Global Monetary Policy The Importance p of Exports p Global Manufacturing Wages The Impact of Global Consumers European Crisis: Fiscal Challenges European Crisis: Sovereign Bond Yields Chinese Growth and Economic Policy Global Equity Valuations – Developed Markets Global Equity Valuations – Emerging Markets Emerging Market Equity Composition International Economic and Demographic Data

Asset Class 55.

56.

57 57.

58.

59.

60.

61.

62.

63.

64.

65.

66.

Asset Class Returns Correlations: 10-Years Mutual Fund Flows Dividend Income: Domestic and Global Global Commodities Gold Historical Returns by Holding Period Diversification and the Average Investor Annual Returns and Intra-year Declines C Cash Accounts Corporate DB Plans and Endowments The Dow Jones Industrial Average Since 1900

Returns by Style Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.

-0.4%

-1.3%

3.9%

2.9%

1.7%

3.2%

1.9%

0.4%

Blend

Growth

Large

Large

1.5%

Value

17.5%

16.0%

15.3%

Mid

Growth

18.5%

17.3%

15.8%

Small

Blend

Mid

1,450

Value

Small

4Q12: -0.4%

1,500 ,

Equities

2012

4Q 2012

S&P 500 Index

18.1%

16.3%

14.6%

1,400 1,350

2012: +16.0% 1 300 1,300 1,250 May-12

Dec-12

1,400

Value

Blend

Growth

-5.5%

2.3%

12.7%

Large

Since 10/9/07 Peak: +2.3%

Since Market Low (March 2009)

135.7% 128.7% 129.9%

10.0%

11.4%

11.6%

Mid

Since Market Peak (October 2007)

180.9% 168.9% 158.1%

5.6%

8.2%

10.1%

Small

1 600 1,600

Oct-12

Large

S&P 500 Index

Aug-12

Mid

Mar-12

Small

Dec-11

Value

Blend

Growth

161.2% 160.9% 159.9%

1,200 1,000

Since 3/9/09 Low: +128.7%

800 600 Dec-06 Mar-08 May-09 Aug-10 Oct-11

Dec-12

Source: Russell Investment Group, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.

All calculations are cumulative total return return, including dividends reinvested for the stated period period. Since Market Peak represents period 10/9/07 – 12/31/12, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 – 12/31/12, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with the exception of the large blend category, which is reflected by the S&P 500 Index.

Past performance is not indicative of future returns.

Data are as of 12/31/12.

4

In de x 50 0

10.1% 12.7% 9.2%

11.0% 4.0% 16.1%

11.5% 16.7% 8.3%

10.6% 12.5% 7.2%

3.1% 2.3% 3.4%

3.4% 0.2% 6.5%

3.6% 4.0% 3.9%

100.0% 100.0% 100.0%

4Q 2012

5.9

-5.7

0.1

3.7

-2.7

2.1

-1.7

-6.0

-2.9

2.7

-0.4

2012

28.8

14.8

17.9

15.3

4.6

23.9

10.8

18.3

1.3

15.0

16.0

Since Market Peak

-48.6

15.8

23.3

-1.4

1.4

37.5

45.1

6.7

5.4

-0.6

2.3

180.8

142.6

98.9

171.1

85.6

218.3

103.5

103.8

84.5

136.8

128.7

Beta to S&P 500

1.43

1.16

0.65

1.20

0.95

1.14

0.53

0.71

0.50

1.30

1.00

Forward P/E Ratio

10 9x 10.9x

12 2x 12.2x

12 6x 12.6x

13 0x 13.0x

11 0x 11.0x

14 9x 14.9x

15 1x 15.1x

16 2x 16.2x

14 3x 14.3x

13 2x 13.2x

12 5x 12.5x

(October 2007)

Since Market Low (March 2009)

15-yr avg.

12.8x

23.8x

18.4x

16.9x

14.7x

18.7x

18.1x

17.5x

13.6x

16.2x

16.7x

Trailing P/E Ratio

12.8x

14.6x

17.7x

14.6x

11.2x

15.4x

17.6x

40.9x

16.6x

18.5x

14.9x

20-yr avg.

15.8x

26.7x

24.1x

20.3x

18.1x

19.4x

21.1x

19.7x

14.4x

19.5x

19.5x

Dividend Yield 20-yr avg.

2.0% 2.1%

1.7% 0.6%

2.2% 1.5%

2.5% 1.8%

2.3% 1.8%

1.6% 1.0%

2.9% 2.1%

4.7% 3.8%

4.4% 4.4%

2.8% 2.1%

2.2% 1.7%

Returrn

12.0% 12.0% 11.5%

β

19.0% 30.9% 6.4%

Weight

S& P

at er ia ls M

es iti Ut il

Te le co m

.S ta pl es Co ns

.D is cr .

Co ns

y En er g

du st ria ls In

ar e C He al th

og y Te ch no l

15.6% 4.6% 27.5%

P/E

S&P Weight Russell Growth Weight Russell Value Weight

Div

Equities

Fi na nc ia ls

Returns by Sector

S Source: Standard St d d & P Poor’s, ’ R Russellll IInvestment t tG Group, F FactSet, tS t J.P. J P Morgan M Asset A t Management.

M t All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 – 12/31/12.

Since Market Low represents period 3/9/09 – 12/31/12.

Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up calculation of constituent earnings (as described) rather than a top-down calculation.

This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yields are bottom-up bottom up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices.

Past performance is not indicative of future returns.

Data are as of 12/31/12.

5

S&P 500 Index at Inflection Points S&P 500 Index Mar. 24, 2000 P/E (fwd.) = 25.6x

1,600

Equities

Characteristic

1 527 1,527

Mar-2000

Index level P/E ratio (fwd.)

Dividend yield 10-yr. Treasury

1,527 25.6x 1 1% 1.1% 6.2%

Oct-2007

Dec-2012

1,565 15.2x 1 8% 1.8% 4.7%

Oct. 9, 2007 P/E (fwd.) = 15.2x

1,426 12.5x 2 2.2% 2% 1.8%

1,565

Dec. 31,, 2012 P/E (fwd.) = 12.5x

1,426

1,400

+101% 101% +106%

1,200

-57% -49% +111%

1 000 1,000

800 Dec. 31, 1996 P/E (fwd.) = 16.0x

Oct. 9, 2002 Oct 00 P/E (fwd.) = 14.1x

741

Mar 9 Mar. 9, 2009 P/E (fwd.) = 10.3x

777

677

600 '97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

Source: Standard & Poor’s, First Call, Compustat, FactSet, J.P. Morgan Asset Management.

Dividend y yield is calculated as the annualized dividend rate divided by y price, p as p provided by y Compustat. p Forward Price to Earnings g Ratio is a bottom-up p calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates.

Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future results.

Data are as of 12/31/12.

6

Stock Valuation Measures: S&P 500 Index

Equities

S&P 500 Index: Valuation Measures Valuation Measure P/E / P/B P/CF P/S PEG Div. Yield

Description Price to Earnings Price to Book Price to Cash Flow Price to Sales Price/Earnings to Growth Dividend Yield

Historical Averages 3-year 5-year avg. avg.

Latest*

1-year ago

10-year avg.

15-year avg.

12.5x

11.8x

12.6x

12.8x

14.2x

16.7x

2.3

2.1

2.1

2.2

2.5

3.0

8.5

8.1

8.4

8.4

9.7

11.0

1.2

1.1

1.2

1.1

1.3

1.5

1.3

1.2

0.9

1.7

1.5

1.5

2.4%

2.3%

2.2%

2.3%

2.1%

1.9%

S&P 500 Shiller Cyclically Adjusted P/E

S&P 500 Earnings Yield vs. Baa Bond Yield

Adjusted using trailing 10-yr. avg. inflation adjusted earnings

10%

S&P 500 Earnings Yield: ((Inverse of fwd. P/E)) 8.0%

50x 9%

40x

8%

4Q12: 21.1x

30x

6%

Average: 19.0x

20x

7%

5%

10x 0x

Moody’s Baa Yield: 4.6%

4%

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

3% '94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Source: (Top) Standard & Poor’s, FactSet, Robert Shiller Data, J.P. Morgan Asset Management.

Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data post-1992 post 1992 include intangibles and are provided by Standard & Poor’s Poor s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 12/31/2012.

(Bottom right) Standard & Poor’s, Moody’s, FactSet, J.P. Morgan Asset Management.

Data are as of 12/31/12.

7

Earnings Estimates and Valuations by Style S&P 500 Index: Forward P/E Ratio

Current P/E vs. 20-year avg. P/E Larrge

Value

24x

Mid

20x

Average: 16.1x

16x 12x

Dec. 2012: 12.5x

Small

Equities

28x

11.8

Blend 12.5

14.0 12.7

15.2 16.2

14.4 14.0

13.2

20.9 16.7

16.3 14.6

14.2

Growth

21.8 16.3

17.1

21.3

8x '00

'02

'04

'06

'08

'10

'12

Current P/E as % of 20-year avg. P/E

S&P 500 Operating Earnings Estimates Consensus estimates of the next twelve months’ rolling earnings

4Q12: $112.62

$120 $100 $80 $60

E.g.: g Large g Cap p Blend stocks are 23.1% cheaper than their historical average.

Value Blend Growth Large

'98

84.8%

76.9%

72.7%

Mid

'96

91.0%

88.3%

76.6%

Small

'94

92.9%

85.7%

76.6%

$40 $20 $0 '03

8

'04

'05

'06

'07

'08

'09

'10

'11

'12

Source: (Top and bottom left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Right) Russell Investment Group, IBES, FactSet. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. P/E ratios are calculated and provided by Russell based on IBES consensus estimates of earnings over the next 12 months except for large blend, which is the S&P 500.

Data are as of 12/31/12.

Corporate Profits Adjusted After-Tax Corporate Profits (% of GDP)

S&P 500 Earnings Per Share

Operating basis, quarterly

2Q07: $24.06

$26

Equities

3Q12: $24.36

$23

Includes inventory and capital consumption adjustments 3Q12: 9 6% 9.6%

11%

10%

$20

9%

$17 8% $14 7% $11

50-yr. avg.: 6.2% 6%

$8 5%

$5

4%

$2 -$1 '02

'04

'06

'08

'10

'12

3%

Source: Standard & Poor’s, Compustat, BEA, J.P. Morgan Asset Management.

EPS levels are based on operating earnings per share. Most recently available data is 3Q12.

Past performance is not indicative of future returns.

Data are as of 12/31/12.

9

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

Sources of Earnings per Share Growth S&P 500 Year-Over-Year EPS Growth

Growth broken into revenue growth and margin expansion, quarterly

Equities

50%

Margin Share of EPS Growth Revenue Share of EPS Growth

40% 30% 20% 10% 0% -10% -20% -30% -40% 3Q94

3Q96

3Q98

3Q00

3Q02

3Q04

3Q06

3Q08

Source: Standard & Poor’s, Compustat, J.P. Morgan Asset Management.

EPS levels are based on operating earnings per share. Most recently available data is 2Q12. *3Q12 data are Standard & Poor’s estimates.

Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart.

Data are as of 12/31/12.

10

3Q10

3Q12

Confidence and the Capital Markets Multiple Expansion and Contraction

Est. impact of a 10pt. rise in sentiment: +2.0 multiple points*

S&P 500 forward P/E based on consensus EPS estimates 26x

Consumer Sentiment

Forward P/E

Equities

24x

110

22x

100

20x

90

18x 80

16x

70

14x

Correlation Coefficient: 0.75

12x 10x

'93

'94

'95

'96

'97

'98

'99

'00

'01

'02

Sentiment & Real Yields

Real yield based on nominal 10-yr. yield minus year-over-year core CPI 6%

60 '03

'04

'05

'06

'07

'08

'09

'10

'11

'12

50

Est impact of a 10pt.

Est. 10pt rise in sentiment: +54 basis points* Consumer Sentiment

Real 10-year Yield

120

5%

110

4%

100

3%

90

2%

80

1%

70

Correlation Coefficient: 0.68

0% -1%

11

120

'93

'94

'95

'96

'97

'98

'99

'00

'01

'02

60 '03

'04

'05

'06

'07

'08

'09

'10

Source: (Top) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Real 10year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month. *Estimated impact based on coefficients from regression analysis. Data are as of 12/31/12.

'11

'12

50

Deploying Corporate Cash Corporate Cash as a % of Current Assets

Corporate Growth

30%

$1,300

28% %

$ $1,200

26%

$1,100

Equities

S&P 500 companies – cash and cash equivalents, quarterly

$bn, nonfarm nonfinancial capex, quarterly value of deals completed

24%

Capital Expenditures

M&A Activity

$1,600 $1 400 $1,400 $1,200 $1,000

$1,000

$800

22%

$900

$600

20%

$800

18%

$400

$700

16% 14% '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

Dividend Payout y Ratio

$200

$600

$0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Cash Returned to Shareholders

S&P 500 companies, rolling 4-quarter averages, billions USD

S&P 500 companies, LTM

$33

60%

$160

Dividends per Share

$30

$140

50%

$120

$27

$100 $24

40%

$80 $21

$60

30% $18

20%

Share Buybacks

$15

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

$20 '00

'01

'02

'03

'04

'05

'06

'07

'08

Source: Standard & Poor’s, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management.

12

$40

(Top left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. Data are as of 12/31/12.

'09

'10

'11

'12

Broad Market Lagged Price to Earnings Ratio Lagged P/E Ratio – All U.S. Corporations

Ratio of market value of all U.S. corporations to adjusted after-tax corporate profits for prior four quarters

Equities

35x

30x

P/E Ratios

25x

Avg. During Recessions

12.6x

Avg. During Expansions

13.9x

December 31, 2012

13.1x

20x

15x

Average: 13.7x

10x

Dec. 31, 2012*: 13.1x

5x

0x '52 52

'55 55

'58 58

'61 61

'64 64

'67 67

'70 70

'73 73

'76 76

'79 79

'82 82

'85 85

'88 88

'91 91

'94 94

'97 97

'00 00

Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management. *The December 31, 2012 price is a J.P. Morgan Asset Management estimated based on the daily value of the Wilshire 5000 Total Market Index.

13

Data are as of 12/31/12.

'03 03

'06 06

'09 09

'12 12

P/E Ratios and Equity Returns P/E and Total Return Over 1-yr. Periods

P/E and Total Return Over 5-yr. Annualized Periods

Quarterly, 1Q 1952 to 3Q 2011

Quarterly, 1Q 1952 to 3Q 2007

Equities

60%

60%

Current P/E: 13.1 12/31/12 Implied Annual Return 15.1% Standard Error 17.2%

40%

Current P/E: 13.1

12/31/12 Implied Annual Return 13.2% Standard Error 5.7%

40%

20%

20%

0%

0% 5x

10x

15x

20x

25x

5x

30x

-20%

-20% 20%

-40%

-40%

10x

15x

20x

Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterly dividends. Valuation based on long-term PE ratio.

Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (left) and 0.35 for 5-yr. returns (right).

Data are as of 12/31/12.

14

25x

30x

Equity Correlations and Volatility Large Cap Stocks

Sovereign Debt Crisis

Correlations Among Stocks

Equities

70%

Great Depression / World War II

60% 50%

1987 Crash Cuban Missile Crisis OPEC Oil Crisis

40%

Lehman Bankruptcy

Tech Bust & 9/11

30% 20%

Dec. 2012: 34.4%

Average: 26.7%

10% 0% '26

'32

'38

'44

Daily Volatility of DJIA 3.5% 3.0% 2.5%

DJIA vol. shown in 3-month moving average

'50

'56

'62

'68

'74

'80

'86

Volatility Measure ’08 Peak DJIA (Left) 3.30% VIX (Right) 80.9

'92

Average 0.72% 20.4

'98

'04

'10

Latest 0.53% 18.0

90 75 60

2 0% 2.0% 45 1.5% 30

1.0%

15

0.5% 0.0%

15

'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 Source: (Top) Empirical Research Partners LLC, Standard & Poor’s, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 – Dec. 31, 2012. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.

Charts shown for illustrative purposes only. Data are as of 12/31/12.

0 '10

Economic Growth and the Composition of GDP Components of GDP

Real GDP % chg at annual rate

20-yr avg. 3Q12

10%

Real GDP:

2.5%

3Q12 nominal GDP, billions USD

3.1%

8%

2.5% Housing $16,000

10.7% Investment ex-housing

6%

Econom my

$18,000

$14,000 $625 bn of output p lost

4%

$12 000 $12,000

2%

19.6% Gov’tt Spending Gov

$10,000

0%

$8,000

2% -2%

$951 bn b off output recovered

-4%

$6,000

71.0% Consumption

$4,000

-6% $2,000

-8% $0

- 3.3% Net Exports

-10% '04

'06

'08

'10

'12

Source: BEA, FactSet, J.P. Morgan Asset Management.

GDP values l shown h iin llegend d are % change h vs. prior i quarter t annualized li d and d reflect fl t 3Q12 GDP. GDP Data are as of 12/31/12.

16

-$2,000

Cyclical Sectors Light Vehicle Sales

Change in Private Inventories

Millions, seasonally adjusted annual rate

Billions of 2005 dollars, seasonally adjusted annual rate

24

$150

22

$100

20

$50

Nov. 2012: 15.5

18 16

Econom my

3Q12: 61.3

$-50

Average: 15.1

14

$0

Average: 28.8

$ 100 $-100

12

$-150

10

$-200

8 '94

'96

'98

'00

'02

'04

'06

'08

'10

'95

'12

'00

'05

'10

Real Capital Goods Orders

Housing Starts

Th Thousands, d seasonally ll adjusted dj t d annuall rate t

Non defense capital goods orders ex.

Non-defense ex aircraft, aircraft $ bn bn, seasonally adjusted

2,400

$75 $70

2,000

$65

1,600

Average: 57.3

$60

Average: 1,384 1 384

1 200 1,200

Nov 2012: Nov. 861

800

$55 $50

400

Nov. 2012: 55.8

$45

0 '95 95

'00 00

'05 05

'10 10

$40 '98

'00

'02

'04

'06

'08

'10

Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.

Capital goods orders deflated using the producer price index for capital goods.

Data are as of 12/31/12.

17

'12

Consumer Finances Consumer Balance Sheet Trillions of dollars outstanding, not seasonally adjusted $80

Econom my

$70

Total Assets: $78.2tn $78 2tn

2Q-’07 Peak: $81.5tn 1Q-’09 Low: $65.2tn

Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted 15%

3Q07: 14.1%

Homes: 25%

14%

$60

Other Tangible: 7% $50

$40

13%

Deposits: 10%

Pension Funds: 18% 12%

$30

$20

Revolving (e.g.: credit cards): 6% Non-revolving: 14% Other Liabilities: 8% Other Financial Assets: 41%

1Q80: 11.1% 11%

Total Liabilities: $13.4tn

$10

4Q12*: 10.4%

Mortgages: 72% $0

10% '80

'85

'90

'95

Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *4Q12 Household Debt Service Ratio is a J.P. Morgan Asset Management estimate.

Data are as of 12/31/12.

18

'00

'05

'10

Corporate Finances Total Leverage

Corporate Financing Gap

S&P 500, ratio of total debt to total equity, quarterly

Nonfarm nonfinancial corporate business, billions USD

240%

$1,600

Total Internal Funds $1,400 $1,200

Econom my

$1,000

Total Capital Expenditures 220%

Companies must borrow

200%

$800

Companies can fund internally

$600 $400 '94

'96

'98

'00

'02

'04

'06

'08

'10

'12

180%

Average: 173%

Interest Coverage Ratio (EBIT / Net Interest) S&P 500, 500 quarterly t l

160%

9x

2Q12: 6.8x

8x 7x

140%

6x 5x 4x

120%

3x 2x

4Q12 : 107%

1x 0x

100% '94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'94 94

'96 96

'98 98

'00 00

'02 02

Source: Federal Reserve, Compustat, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.

(Top Left): All data is from the Fed’s Flow of Funds tables report Z.1, F.102 lines 9 and 11. Total internal funds equals retained earnings plus depreciation.

19

Data are as of 12/31/12.

'04 04

'06 06

'08 08

'10 10

'12 12

Federal Finances: Outlays and Revenues The 2012 Federal Budget

Federal Outlays and Receipts

1960 – 2012, % of GDP

CBO Baseline forecast, trillions USD

26%

$4.0

T t l Spending: Total S di $3.6tn $3 6t $3.5

Econom my

$3.0

$2.5

$2.0

Other $482bn (14%) Net Int.: $220bn (6%) Non-defense Non defense Discretionary: $620bn (17%) Defense: $669bn (19%)

24%

Borrowing: $1,158bn (32%) 2012: 22.8%

% 22%

Other: $226bn (6%) Average: 20.5%

20%

Social Insurance: $ $841bn (23%)

$1.5

Social Security: $768bn (22%)

Corp.: $237bn (7%)

18%

Average: 17.9%

$1.0

$0.5

Medicare & Medicaid: $804bn (23%)

Income: $1,165bn (32%)

$0.0 Total Government Spending

Sources of Financing

16%

14% 1960

Source: U.S. Treasury, BEA, OMB, CBO, J.P. Morgan Asset Management.

2012 Federal Budget is based on the CBO’s August 2012 Baseline Scenario.

Note: Years shown are fiscal years (Oct. 1 through Sep. 30).

Revenue breakout is based on 2012 tax revenue estimates from the Office of Management and Budget.

Data are as of 12/31/12.

20

Revenues Outlays

1970

1980

1990

2000

2012: 15.8%

2010

Federal Finances: Deficits and Debt Federal Net Debt (Accumulated Deficits) % of GDP, 1990 – 2022

Federal Budget Surplus/Deficit % of GDP, 1990 – 2022

100%

-12%

Forecast

Forecast Adjusted CBO Baseline Scenario New Year’s Compromise Scenario

-10%

Econom my

-8%

Adjusted CBO Baseline Scenario New Year’s Compromise Scenario

80%

2022: 72.8%

2012 actual: 72.5% -6%

60%

2022: 58.3% -4%

40%

-2%

0% 20% 2%

0%

4% 1990

1994

1998

2002

2006

2010

2014

2018

2022

1990

1994

1998

2002

2006

2010

Source: U.S. Treasury, BEA, CBO, J.P. Morgan Asset Management.

2012 numbers are actuals. actuals Note: Years shown are fiscal years (Oct (Oct. 1 through Sep. Sep 30).

30) Chart on the left displays federal surplus/deficit (revenues – outlays). Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets. Deficit and debt scenarios are based on CBO budget forecasts from August 2012 and the CBO cost estimate for the American Taxpayer Relief Act, as passed by the Senate on January 1, 2013.

Data are as of 12/31/12.

21

2014

2018

2022

Tax Rates and the Distribution of Income & Taxes Historical Average Maximum Tax Rates by Decade

Share of Income and Taxes by Income Level

100%

Based on adjusted gross income and federal taxes, 2009 Income

80%

Di id d Dividends

5% to 25% 34.1%

60%

Wage Income

Econom my

40%

Top 5% 31.7%

Capital Gains 20% 0%

1930's

1940's

1950's

1960's

1970's

1980's

1990's

2000's

Current

Potential Tax Rate Changes

Taxes

2012 and 2013 maximum federal tax rates under current law 50% 40%

2012

43.4%

2013

40.0%

37.9%

35.0%

30%

23.8%

20%

Bottom 75% 34.2%

15.0%

23.8%

Top 5% 58.7%

15.0% 10.4%

5% to 25% 28.6%

12.4%

10% 0% Wage Income

22

Capital Gains*

Dividends*

Payroll Tax**

Estate Tax***

Bottom 75% 12.7%

Source: (Top left) IRS, J.P. Morgan Asset Management. Wage income tax rates include employer and employee contributions to the Medicare tax. (Bottom left) IRS, The Tax Foundation, J.P. Morgan Asset Management. Tax rates based on maximum U.S. individual income tax. Wage income tax rates include employer and employee contributions to the Medicare tax. *Includes recently enacted healthcare tax of 3.8%. **In 2011 and 2012, the payroll tax cut reduced the employee’s share of Social Security taxes by 2% and was allowed to expire for 2013. Rates shown include both employer and employee contributions to the payroll tax. ***For 2013, the estate tax exemption amount remained at $5.12 million. (Right) IRS, J.P. Morgan Asset Management.

Taxes paid are based on federal individual income taxes, which are responsible for about 25% of the nation's taxes paid.

Data are as of 12/31/12.

Current Account Deficit and U.S. Dollar Current Account Balance, % of GDP

U.S. Dollar Index

-8%

Nominal trade-weighted exchange index: major currencies 115

4Q05: 4Q05 -6.5%

110

Econom my

-6%

105 100 95

-4%

90

3Q12: -2.7%

-2%

Mar 2009: Mar. 84.0

85 80 75

0%

Mar. 2008: 70.3

70

Dec. 2012: 73.1 65 '94 94

23

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

'10 10

'12 12

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

Source: BEA, FactSet, J.P. Morgan Asset Management.

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.

Data are as of 12/31/12 and are reported quarterly.

Data are as of 12/31/12.

'10 10

'12 12

The Aftermath of the Housing Bubble Home Prices

Monthly Rent vs. Monthly Mortgage Payment

Indexed to 100, seasonally adjusted 160

$1,100

Vacant properties Case Shiller 20-city FHFA Purchase Only Average Existing Home

150

M thl Monthly Mortgage Payment

$950 $800

4Q12*: $718

Econom my

$650 $500

140

4Q12*: $481

Monthly Rent

$350 $200

130

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Home Inventories Milli Millions, annuall rate, t seasonally ll adjusted dj t d

120

4.5 4.0

110

3.5 30 3.0

100

2.5

Nov. 2012: 2.2

2.0

90 '03

'04

'05

'06

'07

'08

'09

'10

'11

'12

1.5

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Sources: (Left) National Association of Realtors, Standard & Poor’s, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management.

Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment based on asking price. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. *4Q12 rent and mortgage payment values are J.P. Morgan Asset Management estimates.

24

Data are as of 12/31/12.

Employment Civilian Unemployment Rate

Employment – Total Private Payroll

Seasonally adjusted

Total job gain/loss (thousands)

12%

600

11%

400

Econom my

10%

8.9mm jobs lost

200

9%

0 8%

Nov. 2012: 7.7%

5.1mm jobs gained

-200

7%

-400 6%

-600

50-yr. avg.: 6.1%

5%

-800

4%

3%

-1,000 '70

'80

'90

Source: BLS BLS, FactSet, FactSet J.P. J P Morgan Asset Management Management.

Data are as of 12/31/12.

25

'00

'10

'03

'04

'05

'06

'07

'08

Source: BLS BLS, FactSet, FactSet J.P. J P Morgan Asset Management Management.

'09

'10

'11

'12

Job Growth, Productivity and Labor Force Labor Productivity: Output per Hour

20 Years – Net Job Creation

Net change in millions of payroll jobs, seasonally adjusted

Nonfarm business productivity, % change year-over-year 8%

Fin. & Bus. Services

6.9

Health Care

6.8

40-yr. average: 1.9%

6% 4%

Econom my

2% Leisure & Hospitality

4.2

3Q12: 1.7%

0% -2%

Education

4.0

-4% Trade & Retailing

3.6

'75

'80

'85

'90

'95

'00

'05

'10

Labor Force Participation Rate % of population aged 16+ working or looking for work

Other Services

68%

1.1

67%

Mining & Construction

66%

1.1

65% 64%

Government

0.8

40-yr. average: 65.0% Nov. 2012: 63.6%

63% 62%

Manufacturing

61%

-4.8

60%

-6.0

-4.0

-2.0

0.0

Source: BLS, FactSet, J.P. Morgan Asset Management.

Data as of 12/31/12.

26

2.0

4.0

6.0

8.0

59%

'75 '80 '85 '90 '95 Source: BLS, FactSet, J.P. Morgan Asset Management.

'00

'05

'10

Employment and Income by Educational Attainment Average Annual Earnings by Highest Degree Earned

Unemployment Rate by Education Level

Full-time workers aged 25 and older, 2009, USD

18%

$87,194

$90,000

Less than High School Degree High School No College Some College College or Greater

16%

Econom my

14%

$80,000

+31K $70,000

Nov. 2012: 12.2%

12%

Nov. 2012: 8.1%

10%

$56,665

$60,000

$50,000

+26K

8%

$40 000 $40,000 6%

Nov. 2012: 6.5%

4%

$20,000

Nov 2012: Nov. 3.8%

2%

$10,000

0% '92

'94

'96

'98

'00

'02

'04

'06

Source: BLS BLS, FactSet, FactSet J.P. J P Morgan Asset Management Management.

Unemployment rates shown are for civilians aged 25 and older.

Data are as of 12/31/12.

27

$30,627 $30,000

'08

'10

'12

$0 High School Graduate

Bachelor's Degree

Source: Census Bureau Bureau, JJ.P. P Morgan Asset Management Management.

Advanced Degree

Consumer Price Index CPI and Core CPI % change vs. prior year, seasonally adjusted

50-yr. Avg. Nov. 2012

15%

Headline CPI:

4.2%

1.8%

Core CPI:

4.1%

1.9%

Econom my

12%

9%

6%

3%

CPI Components

Weight in CPI

12-month Change

Food & Bev.

15.3%

1.8%

Housing

41.0%

1.7%

Apparel

3.6%

1.8%

Transportation

16.9%

1.6%

Medical Care

7.1%

3.4%

Recreation

6.0%

1.4%

Educ. & Comm.

6.8%

1.5%

Other

3 4% 3.4%

1 5% 1.5%

100.0%

1.8%

Energy

9.7%

0.3%

Food

13.7%

1.8%

Core CPI

76.6%

1.9%

Headline CPI Less:

0%

-3% '65

'70

'75

'80

'85

'90

'95

'00

'05

'10

Source: BLS, FactSet, J.P. Morgan Asset Management.

CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect November 2012 CPI data. CPI component weights are as of December 2011 and 12-month change reflects non-seasonally adjusted data through November 2012. Core CPI is defined as CPI excluding food and energy prices.

Data are as of 12/31/12.

28

Returns in Different Inflation Environments – 40 years Rising inflation scenarios

Falling inflation scenarios

High and Rising Inflation

High and Falling Inflation

Occurred 14 times since 1972

O Occurred d 6 times ti since i 1972

25%

25% 13%

15%

Econom my

10%

7%

5%

8%

5%

0%

0%

-5%

-5%

-10%

-10%

-15%

-15%

-15% Bonds

Equities

Cash

Commodities

Bonds

Equities

Low and Falling Inflation

Occurred 7 times since 1972

Occurred 13 times since 1972

25%

25%

20%

17%

10%

10%

6% 3%

5%

Commodities

20% 12%

15%

15%

Cash

8%

4%

5%

0%

0%

-5%

-5%

-10%

-10%

6%

-15%

-15% Bonds

Equities

Cash

Commodities

Bonds

Equities

Cash

Commodities

Source: BLS BLS, Barclays Capital Capital, Robert Shiller, Shiller Federal Reserve, Reserve Strategas/Ibbotson, Strategas/Ibbotson Standard & Poor Poor’s s, FactSet, FactSet J.P. J P Morgan Asset Management Management.

High or low inflation distinction is relative to median CPI-U inflation for the period 1971 to 2011. Rising or falling inflation distinction is relative to previous year CPI-U inflation rate. Bond returns are based on the Barclays U.S. Aggregate index since its inception in 1976 and a composite bond index prior to that. Equity returns based on S&P 500 price return and annual dividend yield (total return). Cash returns are based on the Barclays 1-3 Month T-Bill index since its inception in 1992 and 3-month T-Bill rates prior to that. Commodities returns based on S&P GSCI. For illustrative purposes only. Past performance is not indicative of comparable future returns.

Data are as of 12/31/12.

Median Inflation: 3.3%

Below mediian

Low and Rising Inflation

20%

29

15% 10%

2%

5%

20%

Above e median

20%

23% 18%

Oil and the Economy WTI Crude Oil & Retail Gasoline Prices $160

Oil

12/31/00 $26.72 $1 41 $1.41

Oil Gas

12/31/12 $91.82 $3 26 $3.26

Economic Drag From Oil Prices Gas

$4.50

U.S. petroleum imports as a % of GDP

3Q08: 3.8%

4%

$140

$4.00

Econom my

3%

$120

$3.50

$100

$3.00

$80

$2.50

2%

4Q12*: 2.7%

1%

0% '70

'75

'80

'85

'90

'95

'00

'05

'10

Oil Prices and Consumption p per p Country y

Gasoline price per gallon, USD, annual barrels of oil consumed per capita

$60

$2.00

Energy Spending by Income Level $12

30bbls

$10

25bbls

Annual Barrels of Oil Consumed per Capita (Right)

% of after-tax income Gasoline Price per Gallon (Left) $8.18

$40

$1.50

$8.18

$8.03

$8

20bbls $5.45

$6

$20

$1.00

$4

$4.85

$3.44

10bbls

$2

$0 '94

$0.50 '96

'98

'00

'02

'04

'06

'08

'10

'12

Source: U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. Price of gas based on U.S. retail national average of all formulations and WTI for crude.

Data are as of 12/31/12.

30

15bbls

5bbls

$0

0bbls U.S.

U.K.

France

Germany

China

Source: (Top) BEA, FactSet, J.P. Morgan Asset Management.

(Bottom) EIA, J.P. Morgan Asset Management. *4Q12 drag on growth is a J.P. Morgan Asset Management estimate.

India

Global Oil Supply Middle East Energy Production & Chokepoints Percent of global liquid fuel production, 2011

Econom my

Suez Canal 2.2%

250

Mar. 2004: 128 days

200

Iraq 3.0%

Iran 4.9%

150

U.S. Commercial Oil Stocks

100

Libya 0.6%

Egypt 0.8%

Nov. 2012: 260 days

300

Kuwait 3.1%

Syria 0.5%

U.S. Commercial & Strategic Oil Stocks

Days of net imports

50

Saudi Arabia 12.8% Strait of Hormuz 17 0% 17.0%

Sudan S d 0.5%

U.S. Strategic Petroleum Reserve

0

UAE 3.6%

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Total U.S. Energy Net Imports

% of total energy consumption

EIA forecast

35% 30% 25%

Bab el el-Mandeb Mandeb 3.4%

20% 15%

Major Producers

Major Consum ers

Percent of global total, 2011

Percent of global total, 2011

Saudi Arabia 13% China Russia 12% Iran United States 12% Canada

5% 5% 4%

United States 22% India 4% China 10% Saudi Arabia 3% Japan 5% Brazil 3%

10% 5% 0% '90

'95

'00

'05

'10

Source: EIA, J.P. Morgan Asset Management.

Forecasts are from the EIA Annual Energy Outlook 2013. Imports are mostly crude oil, petroleum and natural gas while consumption includes oil, gas, coal, nuclear, hydropower and bio-fuels.

31

Data are as of 12/31/12.

'15

'20

Domestic Natural Gas U.S. Natural Gas Reserves and Prices

U.S. Natural Gas Production

Trillions of cubic meters, USD

Trillions of cubic feet per year

9

30

EIA forecast

Natural Gas Price

Reserves

8

$9

7

$8 $7

6

25

$6

5

$5

Econom my

4

$4

3

Shale Gas

20

$3

2

$2

1

$1

0

$0 '90

15

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

Natural Gas Prices by Country USD per mmBTU* BTU* $16 $14

10

$12

Other

$10

$2

China

Japan p

$4.03

$0 1995

2000

2005

2010

2015

2020

Source: EIA, BP, Federal Energy Regulatory Commission, J.P. Morgan Asset Management. *mmBTU represents 10,000 million British thermal units.

Data are as of 12/31/12.

32

$14.10

$6 $4

0 1990

$13.70 $10.11

$8 5

$10

United States

United Kingdom g

Consumer Confidence and the Stock Market Consumer Sentiment Index – University of Michigan 130 Average 12-month S&P 500 index return‌ After a peak: +1 +1.1% 1%

After a trough: +22.2% +22 2%

Total period: +6.6% +6 6%

120

Jan. 2000 -2.0%

Econom my

110

100

Aug. 1972 Aug -6.2%

Jan. 2004 +4.4% Jan. 2007 -4.2%

Mar. 1984 Mar +13.5%

May 1977 +1.2%

90

Average: 85.3 80

Mar. 2003 +32.8% Oct. 2005 +14.2%

70

Oct. 1990 +29.1%

60

Feb. 1975 +22.2%

50

Nov. 2008 +22.3%

May 1980 +19.2%

Aug. 2011 +15.4%

40 '72

'74

'76

'78

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

Source: University of Michigan, FactSet, J.P. Morgan Asset Management.

Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends.

33

Data are as of 12/31/12.

'06

'08

'10

'12

Fixed Income Sector Returns 2004

2005

2006

2007

2008

2009

2010

2011

2012

4Q12

High Yield

EMD

EMD

High Yield

TIPS

Treas.

High Yield

High Yield

TIPS

EMD

EMD

EMD

EMD

29.0%

11.9%

12.3%

11.8%

11.6%

13.7%

58.2%

15.1%

13.6%

17.9%

3.3%

200.3%

11.6%

EMD

Treas.

MBS

EMD

EMD

Muni

High Yield

High Yield

High Yield

High Yield

9.0%

8.3%

34.2%

12.8%

10.7%

15.8%

3.3%

174.3%

10.6%

Barclays Agg 7.0%

Barclays Agg 5.2%

Corp.

Corp.

Treas.

Corp.

Corp.

18.7%

9.0%

9.8%

9.8%

1.1%

Asset Alloc.

94.3%

Asset Alloc.

6.9%

Asset Alloc.

-1.4%

Asset Alloc.

15.8%

Asset Alloc.

7.6%

Asset Alloc.

8.9%

Asset Alloc.

7.8%

Asset Alloc.

1.0%

TIPS

TIPS

90.4%

6.7%

Corp.

TIPS

TIPS

Corp.

Corp.

8.1%

7.0%

0.7%

84.7%

6.3%

Muni

Muni

Barclays B l Agg 65.8%

Barclays B l Agg 5.2%

EMD

High Yield

26.9%

11.1%

Asset Alloc.

9.7%

Asset Alloc.

3.6%

10.0%

TIPS

Muni

MBS

8.5%

3.5%

5.2%

2.8%

Asset Alloc.

5.1%

Corp.

Treas.

Muni

8.2%

5.4%

2.8%

4.8%

Muni

MBS

High Yield

5.3%

4.7%

2.7%

8.4%

Asset Alloc.

6.3%

Corp.

TIPS

Fixed In ncome

10-yrs '03 - '12 Cum. Ann.

2003

Barclays Agg 4.1%

Muni

TIPS

Barclays B l Agg 4.3%

6.9% Asset Alloc.

6.2%

TIPS

Muni

-2.4%

12.9%

Barclays Agg 6.5%

EMD

Muni

TIPS

TIPS

5.2%

-2.5%

11.4%

6.3%

MBS

Corp.

Corp.

Corp.

4.3%

4.6%

-4.9%

Barclays Agg 5.9%

Treas.

Muni

EMD

3.1%

3.4%

-14.7%

4.5%

2.6%

3.1%

Barclays Agg 4.3%

Barclays Agg 2.4%

Treas.

Treas.

Corp.

TIPS

2.2%

3.5%

1.7%

0.4%

MBS

MBS

High Yield High Yield 1.9%

-26.2%

Barclays B l Agg 7.8%

6.8%

0.7% Barclays Agg 0.2%

Muni

Muni

64.5%

5.1%

Treas.

EMD

5.9%

7.0%

Barclays Agg 4.2%

MBS

MBS

MBS

MBS

Treas.

MBS

MBS

5.9%

5.4%

6.2%

2.6%

-0.1%

64.1%

5.1%

Treas.

Muni

High Yield

Treas.

MBS

Treas.

Treas.

-3.6%

2.4%

5.0%

2.0%

-0.2%

59.0%

4.7%

Source: Barclays Capital, FactSet, J.P. Morgan Asset Management.

Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets Index; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The “Asset Allocation” portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Asset allocation portfolio assumes annual rebalancing.

34

Data are as of 12/31/12.

Interest Rates and Market Performance 10-Year Treasury Yields and Real Capital Market Returns 18%

Sep 30, Sep. 30 1981: 15.84% 15 84%

16%

14%

Fixed In ncome

12%

10%

8%

6%

Dec. 31, 2012: 1.76%

4%

2%

Rising Rate Corp. Bonds S&P 500 1958-1981 3.0% 8.6% Ann. Inflation 5.0% 5.0% Ann. Real Return -2.0% 3.5%

Falling Rate Corp. Bonds S&P 500 1982-2012 10.1% 11.0% Ann. Inflation 3.1% 3.1% Ann. Real Return 6.8% 7.7%

0% '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: Federal Reserve, Standard & Poor’s, BLS, Strategas, J.P. Morgan Asset Management.

All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance.

35

Data are as of 12/31/12.

Fixed Income Yields and Returns Yield U.S. Treasuries

# of issues

Mkt. Value Avg. Maturity

2-Year 5-Year

# of issues: 169

10-Year

Total value: $5.209 tn

Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management.

Return

12/31/2012 12/31/2011

2012

4Q12

2 years

0.25%

0.25%

0.31%

0.05%

5

0.72

0.83

2.29

-0.01

10

1.78

1.89

4.13

-0.23

30

2.95

2.89

2.34

-1.28

30-Year Sector Broad Market

8,109

$16,973 bn

7.0 years

1.74%

2.24%

4.22%

0.22%

805

5,027

4.8

2.22

2.68

2.59

-0.20

Corporates

4,435

3,651

10.6

2.71

3.74

9.82

1.06

Municipals

46,472

1,343

13.6

2.17

2.82

6.78

0.67

580

860

11 0 11.0

4 34 4.34

6 07 6.07

17 95 17.95

3 29 3.29

2,013

1,145

6.7

6.13

8.36

15.81

3.29

33

861

8.9

1.51

1.69

6.98

0.69

Fixed In ncome

MBS

Emerging Debt High Yield TIPS

Price Impact of a 1% Rise/Fall in Interest Rates 25% 20.0% 20% 15% 9.1% 10% 3.5% 5% 0.5% 0% -5% -2.0% -4.9% -10% -9.0% 9 0% -15% -20% -20.0% -25% 2-Year 5-Year 10-Year 30-Year

36

+1% -1%

3.2%

-3.2%

4.1%

-4.1%

5.1%

-5.1%

5.6%

-5.6%

6.7%

-6.7%

6.8%

-6.8%

7.2%

-7.2% 7.2%

Fixed income sectors shown above are provided by Barclays Capital and are represented t d by b – Broad B d Market: M k t U.S. US Barclays Capital Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets Index; High Yield: Corporate High Yield Index. TIPS: Treasury Inflation Protection Securities (TIPS).

T Treasury securities iti d data t ffor # off issues i and market value based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on Bellwethers for Treasury securities.

Change in bond price is calculated using i b both th d duration ti and d convexity it according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2) *Calculation assumes 2-year Treasury iinterest t t rate t ffalls ll 0.25% 0 25% to t 0.00% 0 00% and d the 5-year Treasury falls 0.72% to 0.00%, as interest rates can only fall to 0.00%.

Chart is for illustrative purposes only.

Past performance is not indicative of comparable future results.

Data are as of 12/31/12.

MBS

High Yield Broad Mkt.

TIPS

Munis

EMD

Corps.

The Fed and the Money Supply Money Multiplier

Fed’s Balance Sheet: Assets $ trillions

M2 / Monetary Base

$3.5tn

10x

$3 0tn $3.0tn

Oth Other

9x

$2.5tn

U.S. Treasuries

8x

$2.0tn

Agency MBS

7x 6x

$1.5tn

Dec. 2012: 3.9x

5x

$1 0tn $1.0tn

4x

Fixed In ncome

$0.5tn

3x

$0.0tn

2x

'03

'04

'05

'07

'08

'09

'10

'12

Fed’s Balance Sheet: Liabilities

'03

'04

'05

'06

'07

'08

'09

'10

'12

Federal Funds Rate & FOMC Interest Rate Projections

$ trillions t illi

12%

$3.0tn

10% $2.5tn

Long-term Fed projection

8% $2.0tn

Monetary Base $1 5tn $1.5tn

6%

Excess Reserves

2%

$0.5tn $0.0tn

Dec. 31, 2012: 0.0%-0.25%

4%

$1.0tn

0% '03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'84

'88

'92

'96

'00

'04

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.

Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. Money multiplier defined as M2 divided by the monetary base. Long-term Fed projection is based on average expectations of FOMC members.

37

'11

Data are as of 12/31/12.

'09

'12

'14

Credit Conditions Lending Standards for Approved Mortgage Loans

Commercial & Industrial Loan Demand

Average FICO score based on origination date

Net percent of banks reporting stronger demand

Fixed In ncome

770

Oct. 2012: 751

60%

750

40%

730

20%

710

0%

690

-20%

670

-40%

650

-60% -80%

630 '00

'02

'04

'06

'08

'10

'12

5%

-6% Small Firms Large & Medium Firms '94

'96

'98

'00

'02

All bbanks, k seasonally ll adjusted dj t d

All FDIC insured institutions institutions, 1934 – 2011

12%

14%

10.8%

Residential Mortgages Consumer Loans Commercial and Industrial Loans

8%

'06

'08

'12

2011: 11.1%

12% 10%

6%

8%

2.8%

4% 2%

1.2% '92

'94

'96

'98

'00

'02

'04

'06

'08

'10

Average: 7.6%

6% 4%

'12

'34 34 '41 41 '48 48 '55 55 '62 62 '69 69 '76 76 '83 83 '90 90 Source: (Top left) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left): Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom right) FDIC, J.P. Morgan Asset Management.

All data reflect most recently available releases.

Data are as of 12/31/12.

38

'10

Common Equity as a % of Total Assets

Delinquency Rates

10%

'04

'97 97

'04 04

'11 11

High Yield Bonds High Yield Spreads and Defaults 20%

Average 5.9% 4.2%

HY Spreads HY Defaults

Latest 5.5% 1.1%

S Spreads d

15%

Default Rates 10%

5%

Fixed In ncome

0% '88

'90

'92

'94

'96

'98

'00

'02

'06

'08

'10

'12

Annual Flows into High Yield Mutual Funds & ETFs Billions o s US USD YTD 2012: $36 $36.3 3

Historical High Yield Recovery Rates g yyield e d bo bonds, ds, ce cents ts oon tthee do dollar a High 70¢

$40bn

60¢

$30bn

50¢

'04

$20bn

Average: 40.3¢

40¢ $10bn

30¢ $0bn

20¢

-$10bn

10¢ 0¢

-$20bn

'88

39

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

Source (Top chart): U.S. Treasury, J.P. Morgan, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan Asset Management. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder.

Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. 2012 recovery rate is a year to date number as of November 30, 2012. Flows include ETFs and are as of November 30, 2012. Past performance is not indicative of comparable future results.

Data are as of 12/31/12.

Municipal Finance Muni/Treasury Ratio Ratio of Barclays 10-year Municipal Bond yield to 10-year Treasury 240%

State & Local Government Debt Service Percent of current expenditures 8%

7%

220%

6%

3Q12: 5.1%

200%

5% 180%

Fixed In ncome

4% '90

160%

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Municipal Bond Issuance* o s US USD,, revenue e e ue aandd GO issues ssues Billions

140%

$500bn 120%

$400bn $300bn

100%

Dec. 31, 2012: 113%

80%

$200bn $100bn

60% '98

'00

'02

'04

'06

'08

'10

'12

$0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P. Morgan Asset Management. *Excludes maturities of 13 months or less and private placements. 2012 issuance data is as of November 2012.

Data are as of 12/31/12.

40

Emerging Market Debt Index Breakdown – USD Denominated EMD 100% 80%

Middle East & Africa 7%

Middle East & Africa 8%

Emerging Markets Debt Spreads

Spread to Treasuries of USD-denominated debt, percent

12%

Index

10%

Latin America 43%

Latin America 39%

EMBIG CEMBI

8%

60% 40%

Europe 19% Europe 32%

20%

Asia 35%

Fixed In ncome

0% CEMBI

BBBBB+ BB BB-

2.7% 3.2%

6%

2% 0% '01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

Annual Flows into EMD Mutual Funds & ETFs

Emerging Market Debt Credit Rating EMBIG average g monthlyy credit rating, g inverse scale

3.9% 3.3%

4%

Asia 18%

EMBIG

Average Spread Spread (12/31/12)

Dec 2012: BBBDec.

Billions USD $30bn

YTD 2012 2012: $24 $24.9 9

$25bn $20bn $15bn $ $10bn

B+

$5bn B B-

$0bn

-$5bn '03 '04 '05 '06 '07 '08 '09 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 Source: J.P. Morgan, MorganMarkets, FactSet, Strategic Insight, J.P. Morgan Asset Management.

Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USDdenominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of November 2012. Past performance is not indicative of comparable future results.

Data are as of 12/31/12.

41

'10

'11

'12

Global Equity Markets: Returns and Composition 4Q12 Country / Region

Local

Weights in MSCI All Country World Index

2012 USD

Local

% global market capitalization

USD

Europe ex exU.K. 16%

Regions / Broad Indexes USA (S&P 500)

-

-0.4

-

16.0

EAFE

7.6

6.6

17.9

17.9

Europe ex ex-U.K. UK

61 6.1

86 8.6

20 0 20.0

22 5 22.5

Pacific ex-Japan

6.1

6.1

22.6

24.7

Emerging Markets

5.4

5.6

17.4

18.6

International

Emerging Markets 13% Japan 8%

Share of Global GDP

MSCI: Selected Countries

Based on purchasing power parity

United Kingdom

3.5

4.2

10.2

15.3

France

8.3

10.9

20.9

22.8

Germany

5.9

8.5

30.1

32.1

Japan

17 6 17.6

58 5.8

21 8 21.8

84 8.4

China

12.8

12.9

22.9

23.1

India

4.4

0.5

30.0

26.0

Brazil

4.5

3.6

10.1

0.3

Russia

0 0.7

2 2.5

9 9.7

1 14.4

Europe exU.K. 17% Emerging Markets 50%

Source: Standard & Poor’s, MSCI, IMF, FactSet, J.P. Morgan Asset Management.

42

U.K. 8%

United States 46%

All return values are MSCI Gross Index (official) data. Share of global GDP based on purchasing power parity (PPP) as calculated by the IMF for 2012. Definition of emerging markets is based on MSCI and IMF data sources, respectively.

Percentages may not sum to 100% due to rounding.

Data as of 12/31/12.

U.K. 3% Other Developed 4%

Japan 5% United States 19%

Canada 2%

Global Economic Growth Emerging Market Country Real GDP Growth

Historical

Year-over-year % chg. – forecasts from JPMSI 4Q11

10%

1Q12

2Q12

JPMSI Forecast 3Q12

4Q12

1Q13

2Q13

3Q13

8% 6% 4% 2% 0% -2% -4% Emerging Markets

China

India

Mexico

Russia

Developed Market Country Real GDP Growth

South Africa

Historical

Year-over-year % chg. – forecasts from JPMSI 10%

4Q11

1Q12

2Q12

Korea

Brazil

JPMSI Forecast 3Q12

4Q12

1Q13

2Q13

3Q13

International

8% 6% 4% 2% 0% -2% -4% Developed Countries

U.S.

Canada

Germany

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

Forecast and aggregate data come from J.P. Morgan Global Economic Research.

Data are as of 12/31/12.

43

Japan

U.K.

France

Italy

Global Monetary Policy Central Bank Assets – Percent of Nominal GDP

Real Policy Rates – Monthly

35%

4%

30%

3%

25%

2%

Bank of Japan

1%

20%

European Central Bank

15%

0% -1%

10% % 5%

Emerging Markets

-2%

U.S. Federal Reserve

Developed Markets -3%

0%

'02

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Country Level Monetary Policy and Inflation

'03

'04

'05

Target Policy Rate

10.0%

'06

'07

'08

Inflation Rate

'09

'10

'11

'12

Real Policy Rate

7.5%

2.5% 0.0%

Developed Markets

44

Emerging Markets

Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.

(Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown represent year-over-year quarterly rates for 3Q12. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation.

Data are as of 12/31/12.

China

Brazil

Indonesia

Colombia

Korea

Poland

Mexico

South Africa

Thailand

Russia

Taiwan

India

Turkey

Australia

Japan

Canada

U.S.

Euro area

-5.0%

U.K.

-2.5%

Hong Kong

International

5.0%

The Importance of Exports Exports as a % of GDP – 2011 Goods exports only Brazil

1.0% 2.1%

India

2.0%

China

3.1%

0 8% 0.8%

U.S.

2.3%

Japan

2.2%

U.K.

1.9%

France

1.1%

Italy

1.4%

1.7%

9.8%

4.0%

14.0%

6.2%

10.0%

1.3%

12.7%

4.8% 1.5%

12.4%

2.0%

2.2%

18.0% 21.1%

5.8%

10%

2.5%

15%

20%

Numbers represent exports of goods only and would be higher if services were included.

45

1.6%

26.0%

2.8%

4.2%

Source: IMF, IMF J.P. J P Morgan Asset Management Management.

Data are as of 12/31/12.

23.4%

7.6%

21.8%

5%

Oth Other

26 8% 26.8%

14 4% 14.4%

19.2%

0%

BRIC

26.1%

15.5% 2 1% 2.1%

Canada Germany

1.7%

9 5% 9.5%

6.9%

E Eurozone

17.6%

10.2%

4.4%

1.5% 1.4%

US U.S.

10.3%

4.9%

4.5%

Russia

International

2.2%

25%

38.9%

10.7%

30%

35%

40%

Global Manufacturing Wages Manufacturing Wages Nominal, average USD per month $4 000 $4,000

Emerging Countries

Developed p Countries $3,885

2001*

$3,716

$3,500

Latest

$1,750

$3,000

$1,500 $2 9 8 $2,958

$2,942 $2,500

$1,250

$2,000

$2,089

$1,000

$2,077 $866

$1,500

International

$2 000 $2,000

$750

$1,000

$500 $455 $309

$500

$352

$348 $74

$323 $139

$250 $112

$193

$52

$148

$0

$0

U.S.

Germany

Japan

Brazil

Mexico

China

Thailand

Vietnam

Indonesia

Source: ILO (International Labor Organization), U.S. Bureau of Labor Statistics, Ministry of Labor-Mexico, EM Advisors Group, Thailand National Statistical Office, General Statistics Office of Vietnam, Vietnam Statistics Indonesia, Indonesia IMF IMF, FactSet, FactSet J.P. J P Morgan Asset Management Management.

Chinese wages are those of rural migrant workers as a proxy. *Data begins in 2005 for Vietnam due to availability of data.

Data is from 2012 for Mexico, China, and Thailand; 2011 for United States, Vietnam (preliminary), and Indonesia (preliminary); and 2010 for Brazil, Germany, and Japan.

Data as of 12/31/12.

46

The Impact of Global Consumers Share of Global Nominal Consumption

Foreign Sales, % of Total Sales

40%

40%

35% 35%

Mega Cap (Russell Top 200)

30% 30%

25%

25%

Large g Cap p (Russell ( 1000))

International

20%

U.S. Consumption % of Global

20%

Small Cap (Russell 2000) 10%

15% 1990

1995

2000

2005

2010

'90

'92

'94

'96

'98

'00

'02

'04

Source: FactSet, Compustat, Russell, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.

Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies’ reported sales figures and does not capture p all index members due to differences in reporting p gp practices.

Data are as of 12/31/12.

47

15%

EM Consumption % of Global

'06

'08

'10

European Crisis: Fiscal Challenges GDP Growth, Debt to GDP and Borrowing Costs 8%

6%

Bubble size = 10-year government bond yield g y = 10%

EM

Real GDP Growth (2011 – 20 013)

4%

International

Example of Fiscal Redistribution in the U.S.

= 5% U.S.

2%

Germany France

Ireland

E.U. 0%

The E.U. Lacks a Similar Fiscal Mechanism

Italy Spain Portugal

-2%

-4%

Greece

-6%

-8% 20%

40%

60%

80%

100%

120%

140%

160%

180%

Net Debt-to-GDP Ratio (2012 est.)

Source: IMF, BLS, J.P. Morgan Asset Management.

Maps are for illustrative purposes only and are intended to show the current sources of stress in each region. The U.S. state colors are based on level of unemployment rate. European country colors are based on levels of sovereign stress, including but not exclusively, the measure shown in the above chart on the left. Growth and debt data based on the October 2012 World Economic Outlook. Bond yields as of 12/31/12.

48

Data are as of 12/31/12.

European Crisis: Sovereign Bond Yields European Sovereign Funding Costs

10-year benchmark bond yields, daily 16%

Portugal Ireland Spain Italy France Germany

Introduction of the Euro

14%

12/31/12 6.76% 5.61% 5.23% 4.44% 1.87% 1.31%

12%

10%

8%

International

6%

4%

2%

0% '94

'96

'98

Source: FactSet, ECB, J.P. Morgan Asset Management.

Data are as of 12/31/12.

49

'00

'02

'04

'06

'08

'10

'12

Chinese Growth and Economic Policy China and U.S. Contribution to Global GDP Growth

Chinese Inflation and the Money Supply

40%

10%

Share of year-over-year change in nominal global GDP

China U it d States United St t

35%

Year-over-year % change

30%

CPI (LHS) M2 (RHS)

8%

30%

Most Recent 2.0% 13.9%

25%

6%

25%

4%

20% 15%

20%

2% 15%

10% 0%

5%

-2%

0% '81

'84

'87

'90

'93

'96

'99

'02

'05

'08

'11

China Export Growth

'02

Percentage of GDP

50%

18%

'06

'08

'10

3Q12: 15.3%

Nov. 2012: 8.0%

20%

72% 70%

14%

10% 12%

0%

76% 74%

16%

68%

China (Left)

66% 64%

-10%

10%

-20% 8%

'08

'09

'10

'11

'12

62%

3Q12: 60.1%

05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '05 Source: (Top left) IMF, J.P. Morgan Asset Management. (Top right) National Bureau of Statistics, J.P. Morgan Economics, J.P. Morgan Asset Management.

(Bottom left) IMF, J.P. Morgan Asset Management. (Bottom right) Barclays Capital, Federal Reserve, J.P. Morgan Asset Management. *In 2009, global growth was negligible, while Chinese growth was robust, which resulted in China contributing more than 1200% to global growth.

Calculations based on PPP exchange rates and 2012 – 2016 growth forecasts are from the IMF.

50

'12

78%

United States (Right)

30%

-30%

'04

Mortgage Debt

3 month moving average year-over-year 3-month year over year % 40%

International

10% '00

'14

Data are as of 12/31/12.

'12 12

60% 58%

Global Equity Valuations – Developed Markets

Std d Dev from Global A Average

Developed Market Countries

Expensive relative to world

+5 Std Dev +4 Std Dev +3 3 Std D Dev +2 Std Dev

Expensive relative to own history

+1 Std Dev Average -1 Std Dev

Cheap relative to own history

-2 Std Dev -3 Std Dev -4 Std Dev -5 Std Dev

World (ACWI)

Internatio onal

Example

+6 Std Dev

World (ACWI) EAFE Index France Germ any U.K. J Japan Australia Canada United States Sw itzerland

EAFE Index

France Germany

U.K.

Japan

Australia Canada

United Switzerland States

Average Cheap relative to world

Current Com posite Index

Fw d. d P/E

P/B

P/CF

Div Yld Div. Yld.

Fw d. d P/E

P/B

P/CF

Div Yld Div. Yld.

-0.77 -1.55 -2.03 -1.68 -1.54 -1.14 1 14 -1.00 -0.61 0.32 0.41

12.1 11.6 10.8 10.7 10.7 12 4 12.4 12.9 12.6 12.6 13.0

1.7 1.4 1.2 1.4 1.7 11 1.1 1.8 1.8 2.1 2.1

6.8 5.5 5.5 5.7 6.4 41 4.1 6.9 5.7 8.2 11.4

2.7% 3.5% 3.8% 3.4% 3.9% 2 3% 2.3% 4.7% 2.9% 2.1% 3.4%

13.3 12.8 11.5 11.8 11.4 17 7 17.7 13.4 13.8 14.3 13.6

2.1 1.7 1.6 1.5 2.0 14 1.4 2.2 2.1 2.4 2.4

7.0 6.1 5.8 4.7 7.0 62 6.2 8.2 7.3 8.3 9.8

2.5% 3.4% 3.8% 3.3% 3.9% 1 9% 1.9% 4.5% 2.4% 2.1% 2.9%

Current

10-year avg.

Source: MSCI, FactSet, J.P. Morgan Asset Management.

N t Each Note: E h valuation l ti iindex d shows h an equally ll weighted i ht d composite it off ffour metrics: ti price i tto fforward d earnings i (F (Fwd. d P/E) P/E), price i to t currentt book b k (P/B), price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI).

See disclosures page at the end for metric definitions.

Data are as of 12/31/12.

51

Current

Global Equity Valuations – Emerging Markets Emerging Market Countries

Example Expensive relative to world

Std Dev from Global Avverage

+6 Std Dev +5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev

Expensive relative to own history

+1 Std Dev Average -1 Std Dev

Cheap relative to own history

-2 Std Dev -3 3 Std Dev -4 Std Dev -5 Std Dev

Internatio onal

World EM (ACWI) Index

52

World(ACWI) EM Index Russia Brazil China Taiw an Thailand South Africa Korea Indonesia Mexico I di India

Russia Brazil

Current Com posite Index -0.77 -1.17 -3.77 -1.79 -1.68 -0.59 -0.24 0.26 0.46 2.24 2.31 3 07 3.07

China Taiwan

Thailand South Africa

Korea

Mexico Indonesia

Current

Current Average Cheap relative to world

India 10-year avg.

F d.

Fw d P/E

P/B

P/CF

Di Yld Div. Yld.

F d.

Fw d P/E

P/B

P/CF

Di Yld Div. Yld.

12.1 10.8 5.3 11.5 9.9 14.5 12.2 12.3 8.5 13.8 17.2 14 5 14.5

1.7 1.6 0.8 1.4 1.6 1.8 2.4 2.4 1.2 3.5 3.0 26 2.6

6.8 6.2 3.3 5.2 5.0 6.3 7.7 10.4 5.8 13.1 7.4 13 6 13.6

2.7% 2.7% 3.8% 3.6% 2.9% 3.0% 3.1% 3.2% 1.1% 2.5% 1.5% 1 5% 1.5%

13.3 11.0 7.9 9.7 12.2 14.5 10.5 11.0 9.4 11.5 13.5 15 1 15.1

2.1 1.9 1.3 1.9 2.1 1.9 2.0 2.3 1.5 3.3 2.7 33 3.3

7.0 5.7 4.8 5.6 4.2 6.5 6.5 7.6 4.9 9.0 5.7 12 2 12.2

2.5% 2.7% 2.2% 3.4% 2.8% 3.6% 3.6% 3.3% 1.8% 3.1% 2.0% 1 5% 1.5%

Source: MSCI, FactSet, J.P. Morgan Asset Management.

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI).

See disclosures page at the end for metric definitions.

Data are as of 12/31/12.

Emerging Market Equity Composition MSCI EM Index by Sector

MSCI EM Index by Region Latin America ex Brazil 9%

Africa/Mideast 8%

Brazil 13%

Consumer 17%

Europe 10%

Tech 14%

Asia ex China & Korea 27%

Korea 15%

Other 19%

Commodities 24% Financials 26%

China 18%

MSCI EM Country y Index by y Sector 100% 15%

12%

17%

22%

29%

International

80%

60%

13%

20%

36%

22% 21%

67% 31%

40%

20%

14%

2% 19%

17%

17%

4%

0% Brazil

12% 39%

27%

Russia

India

6%

Mexico*

Data are as of 12/31/12.

Other Commodities Financials

37%

Tech Consumer

22%

11% China

13%

38%

Source: MSCI, FactSet, J.P. Morgan Asset Management. “Other” is comprised of Healthcare, Industrials, Telecom, and Utilities sectors. *Mexican Telecom sector accounts for 22% of the country’s market capitalization. Values may not sum to 100% due to rounding.

53

15%

Korea

International Economic and Demographic Data Economics

Demographics GDP USD GDP Per (Bns) Capita

GDP Growth

Unempl.

Rate

Inflation

C.A.

(CPI)

(%GDP)

Population

Population Growth

Median Age

Migration per 1000

Developed U.S.

$15,076

$48,328

1.5%

7.7%

1.8%

-2.7%

314 mm

0.9%

37.1 yrs

+3.6

Canada

1,739

50,496

1.5

7.2

1.1

-4.2

34

0.8

41.2

+5.7

U.K.

2,431

38,811

0.0

7.8

2.6

-3.7

63

0.6

40.2

+2.6

Germany

3 607 3,607

44 111 44,111

-1.0 10

69 6.9

19 1.9

67 6.7

81

-0.2 02

45 3 45.3

+7 +.7

France

2,778

44,007

-1.5

10.3

1.4

-2.0

66

0.5

40.4

+1.1

Japan

5,867

45,870

-0.5

4.1

-0.4

1.0

127

-0.1

45.4

-

Italy

2,199

36,267

-2.0

10.6

2.5

-0.5

61

0.4

43.8

+4.7

Russia

1,850

12,993

3.0

5.4

6.4

5.4

143

0.0

38.8

+0.3

Mexico

1,154

10,146

2.3

5.1

4.2

-0.8

115

1.1

27.4

-3.1

Brazil

2,493

12,789

3.1

4.9

5.5

-2.1

199

0.9

29.6

-0.1

China

7,298

5,417

8.2

4.1

2.0

2.8

1,343

0.5

35.9

-0.3

India

1 827 1,827

1 514 1,514

51 5.1

98 9.8

75 7.5

-3.2 32

1 205 1,205

13 1.3

26 5 26.5

-0.1 01

International

Emerging

Source: FactSet, Eurostat, CIA, J.P. Morgan Securities, J.P. Morgan Asset Management.

GDP levels represent 2011 data and are from the October 2012 World Economic Outlook published by the IMF, except for the U.S. levels, which come directly from the BEA. All GDP Growth data are from J.P. Morgan Economics and expressed as % change versus prior quarter annualized. All GDP growth data are for 4Q12. India unemployment is from CIA estimates and is as of 2011. CPI Inflation is shown as % change versus a year ago and all data are for November 2012, except for Japan and the Canada, which are as of October 2012. Unemployment rate for developed countries comes from FactSet Economics, Eurostat and Statistics Canada and represent the most recently available data. Demographic data provided by CIA World Factbook at CIA.gov.

Current Account (C.A.) represents each country’s current account balance as of 9/30/12. Russia, China and Brazil’s current accounts are as of 12/31/11.

Data are as of 12/31/12.

54

Asset Class Returns 2003 MS CI EME 56.3%

Asset Class

2005

2006

2007

2008

2009

Ba rc la ys Agg 5.2%

MS CI EME 79.0% MS CI EAFE 32.5%

2010

2011

2012

REITs

REITs

REITs

27.9%

8.3%

19 . 7 %

MS CI EAFE 6.6%

Russe ll 2000 26.9%

Ba rc la ys Agg 7.8%

MS CI EME 18 . 6 %

MS CI EME 5.6%

Ma rke t Ne utra l 4.5%

MS CI EAFE 17 . 9 %

S &P 500 2 . 1%

Russe ll 2000 16 . 3 %

3 1. 6 %

MS CI EME 34.5%

3 5 . 1%

MS CI EME 39.8%

Russe ll 2000 47.3%

MS CI EME 26.0%

DJ UBS Cmdty 2 1. 4 %

MS CI EME 32.6%

DJ UBS Cmdty 16 . 2 %

MS CI EAFE 39.2%

MS CI EAFE 20.7%

MS CI EAFE 14 . 0 %

MS CI EAFE 26.9%

MS CI EAFE 11. 6 %

Ma rke t Ne utra l 1. 1%

28.0%

MS CI EME 19 . 2 %

Ma rke t Ne utra l 9.3%

Asse t Alloc .

- 24.0%

Russe ll 2000 27.2%

DJ UBS Cmdty 16 . 8 %

REITs

REITs

Ca sh 1. 8 %

REITs

3 7 . 1%

Russe ll 2000 18 . 3 %

12 . 2 %

Russe ll 2000 18 . 4 %

S &P 500 28.7%

Asse t Alloc .

12 . 5 %

Asse t Alloc .

8.3%

S &P 500 15 . 8 %

Asse t Alloc .

7.4%

Russe ll 2000 - 33.8%

S &P 500 26.5%

S &P 500 15 . 1%

0 . 1%

S &P 500 16 . 0 %

Asse t Alloc .

2 5 . 1%

S &P 500 10 . 9 %

Ma rke t Ne utra l 6 . 1%

Asse t Alloc .

15 . 2 %

Ba rc la ys Agg gg 7.0%

DJ UBS y Cmdty - 35.6%

Asse t Alloc .

22.2%

Asse t Alloc .

12 . 5 %

Asse t Alloc .

- 0.6%

Asse t Alloc .

11. 2 %

DJ UBS Cmdty 23.9%

DJ UBS Cmdty 9 . 1%

S &P 500 4.9%

Ma rke t Ne utra l 11. 2 %

S &P 500 5.5%

S &P 500 - 37.0%

DJ UBS Cmdty 18 . 9 %

MS CI EAFE 8.2%

Russe ll 2000 - 4.2%

Ba rc la ys Agg 4.2%

Ma rke t Ne utra l 7 . 1%

Ma rke t Ne utra l 6.5%

Russe ll 2000 4.6%

Ca sh

Ca sh

REITs

4.8%

4.8%

- 37.7%

Russe ll 2000 - 1. 6 %

MS CI EAFE - 4 3 . 1%

REIT REITs

55

2004

Ba rc la ys Ba rc la ys Agg Agg 4 . 1% 4.3%

REIT REITs

3.0%

Ba rc la ys Agg 4.3% DJ UBS Cmdty

REITs

MS CI EME

2 . 1%

- 15 . 7 %

- 53.2%

Ca sh

Ca sh

Ca sh

Ba rc la ys Agg

1. 0 %

1. 2 %

2.4%

Ba rc la ys Ba rc la ys Agg Agg 5.9% 6.5%

Ca sh

10-yrs '03 - '12 Cum. Ann. MS CI EME 376.0%

MS CI EME 16 . 9 %

REITs

REITs

204.6%

11. 8 %

3 . 1%

Russe ll 2000 15 2 . 8 %

Russe ll 2000 9.7%

Russe ll 2000 1. 9 %

MS CI EAFE 13 0 . 3 %

MS CI EAFE 8.7%

Asse t Alloc .

1. 3 %

Asse t Alloc .

117 . 7 %

Asse t Alloc .

8 . 1%

Ba rc la ys Agg gg 0.2%

S &P 500 98.6%

S &P 500 7 . 1%

0.0%

Ba rc la ys Agg 65.8%

Ba rc la ys Agg 5.2%

Ma rke t Ne utra l 60.2%

Ma rke t Ne utra l 4.8%

REITs

Ca sh

0 . 1%

Ma rke t Ne utra l 0.0%

0 . 1%

DJ UBS Cmdty - 13 . 3 %

Ma rke t Ne utra l 0.0%

S &P 500 - 0.4%

DJ UBS Cmdty 49.3%

DJ UBS Cmdty 4 . 1%

Ca sh

Ma rke t Ne utra l

MS CI EME

DJ UBS Cmdty

DJ UBS Cmdty

Ca sh

Ca sh

0 . 1%

- 0.8%

- 18 . 2 %

- 1. 1%

- 6.3%

18 . 2 %

1. 7 %

Ma rke t Ne utra l 4 . 1%

Ca sh

MS CI EAFE - 11. 7 %

4Q12

Ca sh

Source: Russell,, MSCI,, Dow Jones,, Standard & Poor’s,, Credit Suisse,, Barclays y Capital, p , NAREIT,, FactSet,, J.P. Morgan g Asset Management. g The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 12/31/12, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 11/30/12. “10-yrs” returns represent period of 1/1/03 – 12/31/12 showing both cumulative (Cum.) and annualized (Ann.) over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures.

Data are as of 12/31/12.

Correlations: 10-Years

Large Cap Small Cap

Large Cap

Small Cap

EAFE

1 00 1.00

0 95 0.95 1.00

EAFE

REITs

Hedge Funds

Eq. Market Neutral*

0 52 0.52

0 80 0.80

0 82 0.82

0 60 0.60

0.61

0.45

0.84

0.76

0.55

0.75

0.68

0.58

0.72

0.87

0.72

-0.10

0.79

0.76

0.63

0.64

0.90

0.61

1.00

-0.04

0.28

-0.26

0.00

-0.21

-0.08

1.00

0.88

0.54

0.71

0.78

0.43

1.00

0.44

0.66

0.69

0.42

1.00

0.39

0.73

0.52

1.00

0.58

0.50

1.00

0.60

EME

Core Bonds

Corp.

HY

EMD

Cmdty.

0 92 0.92

0 84 0.84

-0.21 0 21

0 77 0.77

0 67 0.67

0.87

0.79

-0.26

0.73

1.00

0.93

-0.15

1.00

EME Core Bonds Corp. HY EMD Commodities

Asset Class

REITs Hedge Funds

1.00

Eq. Market Neutral*

Source: Standard & Poor’s, Russell, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NCREIF, DJ UBS, J.P. Morgan Asset Management.

Indexes used – Large Cap: S&P 500 Index; Small Cap: Russell 2000; EAFE: MSCI EAFE; EME: MSCI Emerging Markets; Bonds: Barclays Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: DJ UBS Commodity Index; Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral: CS/Tremont Equity Market Neutral Index. *Market Neutral returns include estimates found in disclosures.

All correlation coefficients calculated based on quarterly total return data for period 12/31/02 to 12/31/12.

This chart is for illustrative purposes only.

56

Data as of 12/31/12

Mutual Fund Flows Fund Flows Billions, USD

AUM

YTD 2012

2011

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Domestic Equity

4 290 4,290

(130)

(132)

(81)

(28)

(148) (65)

(0)

18

101

120

(26)

55

261

176

149

World Equity

1,562

7

4

58

28

(80)

139

149

106

71

24

(3)

(22)

53

11

8

Taxable Bond

2,832

244

136

230

311

22

97

45

26

5

40

125

76

(36)

8

59

Tax-exempt Bond

590

53

(12)

11

69

8

11

15

5

(15)

(7)

17

11

(14)

(12)

15

Hybrid

980

46

30

24

10

(26)

42

18

37

49

38

9

9

(36)

(14)

10

2,617

(77)

(124)

654

245

62

375

159

194

235

Money Market

(525) (539) 637

Cumulative Flows into Stock & Bond Funds Includes both mutual funds and ETFs, $ billions $ $1,400

Difference Between Flows Into Stock and Bond Funds Billions, USD, U.S. and international funds, monthly $40

$1,600

Nov. ’12: 12: $1,390 billion into bond funds and fixed income ETFs since ’07

(157) (263) (46)

Bond flows exceeded equity flows b $47 billion by billi in i November N b 2012

$20

$1,200 $1,000

$0

$800

Nov. ’12: $193 billion into stock funds and equity ETFs since ’07

Asset Class

$600

57

$400 $200 $0

Bonds

$20 -$20

-$40

Stocks -$60 Jun '08 08

Apr '09 09 Feb '10 10 Dec '10 10 '07 '08 '09 '10 '11 '12 Source: Investment Company Institute, J.P. Morgan Asset Management.

Data include flows through November 2012 and exclude ETFs. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows.

Data are as of 12/31/12.

Oct '11 11

Aug '12 12

Dividend Income: Domestic and Global S&P 500 Total Return: Dividends vs. Capital Appreciation

Capital Appreciation Dividends

Average annualized returns 20% 15% 10%

13.6%

13.9% 3.0%

5%

5.1%

5.6% 4.4%

4.2%

3.3%

0%

15.3%

1.6%

4.4%

6.0%

5.4%

4.7%

12.6%

1.8%

2.5%

4.1%

-2.7%

-5.3% 5 3% -5% -10% 1926 - 1929

1930's

1940's

1950's

1960's

Major world markets by capitalization 5.4%

5.3%

5.1%

10-year 10 year government bond yield

1990's

2000's

5%

10-year government bond yield

4.6%

4.5%

3.8%

4%

3.8%

4.2% 3.2%

3.8%

3.7%

2.9%

3%

Asset Class

2.8%

2.3%

3%

58

1926 to 2012

Major world markets by capitalization

5.0%

5%

4%

1980's

Equity Dividend Yields

REIT Dividend Yields 6%

1970's

2.2%

2% 2% 1%

1%

0%

U.S.

Australia

Singapore

Canada

France

Japan

Global

U.K.

0%

U.S.

Australia

France

U.K.

Switzerland Canada

Source: (Top chart) Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management. (Bottom left) FactSet, NAREIT, J.P. Morgan Asset Management.

Dividend vs. capital appreciation returns are through 12/31/12. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index.

Data are as of 12/31/12.

ACWI

Japan

Global Commodities Oil Demand: Emerging Markets Share

Commodity Prices

Emerging markets as % of total global oil consumption

Weekly index prices rebased to 100

40%

600

38%

Precious Metals 500

Industrial Metals

36% 34% 32%

400

30% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Commodity y Prices and Inflation

300

Year-over-year % chg.

8%

DJ-UBS Commodity Index (Y/Y % chg.)

Energy

80%

6%

60%

4%

40%

2%

20%

0%

0%

-2%

-20%

-4% Headline CPI (Y/Y % chg.)

-40%

200

Asset Class

Grains

100

Livestock 0 '03

'04

'05

'06

'07

'08

'09

'10

'11

'12

-60% '94

'96

'98

'00

'02

'04

'06

Commodity prices represented by the appropriate DJ/UBS Commodity sub-index.

Source: (Top) BP Statistical Review of World Energy, J.P. Morgan Asset Management. (Bottom) BLS, DJ/UBS, FactSet, J.P. Morgan Asset Management.

Data are as of 12/31/12.

Data are as of 12/31/12.

Source: Dow Jones/UBS, FactSet, J.P. Morgan Asset Management.

59

-6% '08

'10

'12

Gold Gold Prices $ / oz

Year

$3,000

$2,500

Gold, Inflation Adjusted Gold

Jan. 1980: $2,480.36

Dec. 2012: $1,657.50

$2,000

$1,500

Asset Class

$1,000

Jan. 1980: $850.00

$500

$0 '75

'85

'90

'95

'00

'05

'10

2000

83.3 mm

$23 bn

2001

83.6 mm

$23 bn

2002

82.0 mm

$25 bn

2003

81 7 mm 81.7

$30 b bn

2004

77.8 mm

$32 bn

2005

79.4 mm

$35 bn

2006

76.2 mm

$46 bn

2007

75.6 mm

$53 bn

2008

73.3 mm

$64 bn

2009

79.1 mm

$77 bn

2010

82.3 mm

$101 bn

2011

86 8 mm 86.8

$136 bn

Source: (Left chart) EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (Right table) U.S. Geological Survey, World Gold Council, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices divided by the CPI value for that month. CPI is rebased to 100 at the end of the chart. 2011 world production is a U.S. Geological Survey estimate.

Data are as of 12/31/12.

60

'80

World Gold Production Troy Ounces Total Value

Historical Returns by Holding Period Range of Stock, Bond and Blended Total Returns Annual total returns, 1950 – 2012 60% 50%

Annual Avg. Growth of $100,000 Total T t l Return R t over 20 years Stocks

51%

40%

43%

30%

10.8%

$782,751

Bonds

6.2%

$335,627

50/50 Portfolio

8.9%

$554,754

32% 28%

20%

23%

21%

19%

18%

16% 17%

10%

12%

14%

6% 0%

-2% -2% 1% -8%

-10%

-1% 1%

2%

-15%

Stocks Bonds 50/50 Portfolio

Asset Class

-20% -30%

5% 1%

-37%

-40% 1-yr.

5-yr. rolling

10-yr. rolling

20-yr. rolling

Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management.

Returns shown are based on calendar year returns from 1950 to 2012. Growth of $100,000 is based on annual average total returns from 1950-2012.

61

Data are as of 12/31/12.

Diversification and the Average Investor Maximizing the Power of Diversification (1994 – 2011) Traditional Portfolio

More Diversified Portfolio Equity Mkt. Neutral Commodities 8% 26%

S&P 500

30%

REIT

8% 8%

55%

MSCI EAFE Barclays y Agg. gg

15%

S&P 500 Russell 2000

4%

22%

13%

MSCI EAFE

9%

MSCI EM Barclays Agg.

Return: 6.75% Standard Deviation: 10.94%

Return: 7.09% Standard Deviation: 9.97%

20-year Annualized Returns by Asset Class (1992 – 2011) 12%

10.9%

10% 8.6% 7 8% 7.8%

Asset Class

8%

7 6% 7.6% 6.5%

6% 4.0% 4% 2.5%

2.5%

Inflation

Homes

2.1%

2% 0% REITs

62

Oil

S&P 500

Gold

Bonds

EAFE

Average Investor

(Top) Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% S&P 500, U.S. bonds: 30% Barclays Capital Aggregate. International stocks: 15% MSCI EAFE. Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.2% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity REIT Index Index. Return and standard deviation calculated using Morningstar Direct.

Charts are shown for illustrative purposes only. Past returns are no guarantee of future results.

Diversification does not guarantee investment returns and does not eliminate risk of loss. Data are as of 12/31/12 12/31/12.

(Bottom) Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz, Inflation: CPI Average asset allocation CPI. investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/11 to match Dalbar’s most recent analysis.

Annual Returns and Intra-year Declines S&P 500 Intra-year Declines vs. Calendar Year Returns Despite average intra-year drops of 14.7%, annual returns positive in 25 of 33 years 40%

34 31

30%

27

26

26

27

26 20

20%

15

17

15

14 4

2

1

23

20

12

10% 0% -10

26

9

7

4

3

-2

-7

-10 -13 -23

-38

0

% -10%

-7

-8

-8

-9

-6

-8

-6

-3

-5 -9

-8

-17 -18 -17

-8 -11

-13 13

-20%

13

13

-12 12 -19

-20

-7

-8

-10

-10

-14

-16

-17

-30%

-19 -28

-30 -34

-34

Asset Class

-40% 40% -50%

-49

-60% '80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management.

Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2012.

Data are as of 12/31/12.

63

'08

'10

'12

Cash Accounts Annual Income Generated by $100,000 Investment in a 6-month CD

Money Supply Component

$10,000 $8,000

$ Billions

Weight in Money Supply

2006: $5 $5,240 240

$6,000

M2-M1

$4,000

2012: $450

$2,000

Retail MMMFs

Savings deposits

$0 1986

1990

1994

1998

2002

2006

7,873

632

6,596

76.9%

6.2%

64.4%

2010

Cash Accounts as a % of Total Household Financial Assets Cash

Small time deposits

645

Institutional MMMFs

1,733

6.3%

28%

6-month CD rate vs. Core CPI

Mar ’09 Mar. 09 S&P 500 low

Oct. ’02 S&P 500 low

24%

Cash in IRA & Keogh accounts

20%

638

16.9%

6.2%

Asset Class

16%

64

Total

12% '98

'00

'02

'04

'06

'08

'10

'12

Source: Federal Reserve, St. Louis Fed, Bankrate.com, J.P. Morgan Asset Management.

All cash measures obtained from the Federal Reserve are seasonally adjusted monthly numbers. All numbers are in billions of U.S. dollars.

Small-denomination time deposits are those issued in amounts of less than $100,000. All IRA and Keogh account balances at commercial banks and thrift institutions are subtracted from small time deposits. Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested. 2012 average income is through November 2012. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds.

Past performance is not indicative of comparable future results.

Data are as of 12/31/12.

10,245

100.0%

Corporate DB Plans and Endowments Asset Allocation: Corporate DB Plans vs. Endowments

Defined Benefit Plans – Funded Status: S&P 500 Companies

Underfunded

Overfunded

Endowments

6%

Corporate Defined Benefit Plans

45.3% 13.0%

Fixed Income

Hedge Funds

Private Equity

2.7%

2011

40%

1999: Average 9.2%

33%

12.2% 4.1%

10%

2010: Average 7.4%

30%

4.7% 0%

1999

4.7%

4.0%

Cash

94%

Pension Return Assumptions: S&P 500 companies

10 7% 10.7%

3.1%

Other

78%

21.9%

% of Comp panies

Asset Class

35.5%

6.1%

Real Estate

65

22%

32.0%

Equities

% of total 20%

30%

40%

50%

29%

27% 27%

20% 20%

16%

16%

9%

10%

8%

7%

5% 2%

1%

0%

0%

0%

0% < 7%

7 to 7.5%

7.5 to 8%

8 to 8.5%

8.5 to 9%

Return Assumption

Source: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan Asset Management. Asset allocation as of 2010. Funded status as of 2011. Endowments represents dollar-weighted average data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Funded Status based on 347 companies reporting pension funding status. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposes only. Data are as of 12/31/12.

9 to 9.5%

9.5 to 10%

> 10%

The Dow Jones Industrial Average Since 1900 Dow Jones Industrial Index, Price Return (Since 1900) Log Scale

2000 – present 10,000

3,000 1966 – 1982 1,000

400 1937 – 1949

Asset Class

100 1906 – 1924

'10

'20

'30

'40

'50

Source: IDC, FactSet, J.P. Morgan Asset Management.

Data shown in log scale to best illustrate long-term index patterns.

Past performance is not indicative of future returns. Chart is for illustrative purposes only.

Data are as of 12/31/12.

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'60

'70

'80

'90

'00

'10

J.P. Morgan Asset Management – Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses.

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy.

Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index.

The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries.

The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization.

The Russell 1000 Index ® measures the performance of the 1,000 largest companies in the Russell 3000.

The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower priceto-book ratios and lower forecasted growth values.

The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index.

The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index.

The Russell Midcap p Value Index ® measures the pperformance of those Russell Midcapp companies p with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index.

The Russell 2000 Index ® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower priceto-book to book ratios and lower forecasted growth values. values The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe.

It includes approximately 200 of the largest securities based on a combination of their market cap and current index membership and represents approximately 68% of the U.S. market.

The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America.

The MSCI Emerging Markets IndexSM is a free float-adjusted float adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

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The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices.

The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 USD200 1 500 million million.

The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forwardlooking variables. The objective of the index design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to Mayy 30, 2003, the indices used Price/Book Value ((P/BV)) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.

The following MSCI Total Return IndicesSM are calculated with gross dividends: This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits.

The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Austria Belgium Belgium, Denmark, Denmark Finland, Finland France, France Germany, Germany Greece, Greece Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore.

Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an assetweighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC. The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.

J.P. Morgan Asset Management â&#x20AC;&#x201C; Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses.

The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.

The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities.

The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis.

This U.S. U S Treasury Index is a component of the U U.S. S Government index. index West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts.

The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included.

The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible.

The Barclays Capital General Obligation Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be general obligation bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, th rating the ti mustt bbe iinvestment-grade. t t d Th They mustt hhave an outstanding t t di par value l off att lleastt $7 million illi andd be b issued i d as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.

The Barclays Capital Revenue Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be revenue bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment investment-grade. grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.

The Barclays High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moodyâ&#x20AC;&#x2122;s, S&P and Fitch.

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The Barclays Capital Taxable Municipal Bond Index is a rules-based, market-value weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate and must be at least one year from their maturity date. Remarketed issues (unless converted to fixed rate), bonds with floating rates, and derivatives, are excluded from the benchmark.

Municipal Bond Index: To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives are excluded from the benchmark.

The Barclays Capital Emerging Markets Index includes USD-denominated USD denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability.

The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages.

The Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index.

The Barclays Capital TIPS Index consists of Inflation Inflation-Protection Protection securities issued by the U U.S. S Treasury Treasury.

The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.

The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market.

The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e., a beta of zero).

The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage. *Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data).

Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation p of returns in the category. g y CS/Tremont later ppublished a finalized November return of 40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.

J.P. Morgan Asset Management – Definitions, Risks & Disclosures Past performance is no guarantee of comparable future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.

The price of equity securities may rise, or fall because of changes in the broad market or changes in a company’s financial condition, condition sometimes rapidly or unpredictably. unpredictably These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time.

Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock.

Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies.

Historically, Hi t i ll mid-cap id companies' i ' stock t k hhas experienced i d a greater t ddegree off market k t volatility l tilit th than th the average stock.

Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.

International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accountingg and taxation ppolicies outside the U.S. can raise or lower returns. Also,, some overseas markets may not be as politically and economically stable as the United States and other nations.

Investments in emerging markets can be more volatile. As mentioned above, the normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns.

Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's firm s future financial health. health Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment.

There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Investing using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

All cases studies shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. Results shown are not meant to be representative of actual investment results.

The views expressed are those of J.P. Morgan Asset Management. They are subject to change at any time.

These views do not necessarily reflect the opinions of any other firm.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited which is regulated by the Financial Services Authority; in other EU j i di i jurisdictions bby JPM JPMorgan A Asset M Management (E (Europe)) S.à S à r.l.; l iin S Switzerland i l d bby JJ.P. P M Morgan (S (Suisse) i ) SA SA, which is regulated by the Swiss Financial Market Supervisory Authority FINMA; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securities and Futures Commission; in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited which is regulated by the Monetary Authority of Singapore; in Japan by JPMorgan Securities Japan Limited which is regulated by the Financial Services Agency; in Australia by JPMorgan Asset Management (Australia) Limited which is regulated by the Australian Securities and Investments Commission; in Brazil by Banco J.P. Morgan S.A. which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen); and in Canada by JPM JPMorgan A Assett M Managementt (C (Canada) d ) Inc. I which hi h is i a registered i t d Portfolio P tf li Manager M andd E Exemptt M Market k t Dealer in Canada (including Ontario) and in addition, is registered as an Investment Fund Manager in British Columbia. This communication is issued in the United States by J.P. Morgan Investment Management Inc. which is regulated by the Securities and Exchange Commission. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.

JPMorgan Distribution Services, Inc., member FINRA/SIPC. © JPMorgan Chase & Co., January 2013.

Unless otherwise stated,, all data are as of December 31,, 2012 or most recentlyy available.

Prepared by: Joseph S. Tanious, Andrés Garcia-Amaya, David M. Lebovitz, Brandon D. Odenath, Gabriela D. Santos, Anthony M. Wile and David P. Kelly.

NOT FDIC INSURED ı NO BANK GUARANTEE ı MAY LOSE VALUE JP-LITTLEBOOK

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